Reasons for swollen battery?

Apple battery packs contain a set of 6 lithium Ion (Li-Ion) cells (the metal covered envelopes), connectivity circuitry, and a small logic board.

The main cause for battery cell swelling is what is known as thermal runaway.

If a cell reaches a certain temperature then a chemical in the cell (usually Cobalt Oxide for Lithium Ion batteries) starts an unintended reaction which is exothermic in nature (i.e. it creates heat). More heat raises the cell temparature further which causes more of the same chemical reaction

This creates a runaway thermal overload which can end in one of two ways, the cell and therfore the battery pack, catches fire or the reaction fizzles out with the cell in a swollen state.